On April 1, 2012, a company that uses a calendar year purchases equipment with a

Question

On April 1, 2012, a company that uses a calendar year purchases equipment with an acquisition cost of $85,000 that it estimates will produce 800,000 units over its 8-year life and have a residual value of $5,000. You are depreciating the asset for book purposes. If the company uses the straight-line method, 2012 depreciation will be . . . $10,625 $10,000 $7,969 $7,500 If the company uses units of production depreciation and the equipment produces 75,000 units in 2012 and 150,000 units in 2013, then at the end of the second year, total accumulated depreciation will be . . . $80,000 $22,500 $15,000 $7,500 If the company uses double-declining balance depreciation, its 2012 depreciation (rounded) will be . . . $15,938 $13,333 $10,000 $7,500 Under double-declining balance depreciation, the equipment's book value (rounded) at the end of 2013 will be . . . $69,063 $67,500 $51,797 $47,813 If the company uses the sum-of-the-years'-digits method, the 2013 depreciation will be (rounded).. $17,778 $15,556 $16,111 $13,333

Explanation / Answer

1) Under Straight line method

= ((85,000-5,000)*9months/12 months)/8 years= $7,500

So, Answer is Option D

2) Unit of production

1st year= (80,000*[75,000/800,000])=$7,500

2nd year= (80,000*[150,000/800,000])=$15,000

Accumulated depreciated is $22,500

So, Answer is option B

3) Double decline balance depreciation

= [((85,000)*9months/12 months)/8 years]*2= $15,937.5

So, Answer is option A

4) Double decline balance depreciation

1st year depreciation = [((85,000)*9months/12 months)/8 years]*2= $15,937.5

end of 1st year book value after depreciation is = 85,000-15,937.5 =$69,062.5

2nd year depreciation = [(69,062.5)/8 years]*2= $17,265.625

end of 1st year book value after depreciation is = $69,062.5-$17,265.625 =$51,797

So, Answer is option C

5) Sum of digit method

= $80,000*(7/36) Note: under sum of digits method(8+7+6+5+4+3+2+1=36)

= $15,556
So, Answer is Option B

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